Western Union: Threat of New Entrants and Technology Means More Turbulence Ahead

Implications: In this article Obopay is credited for impacting Western Union's share price. Obopay is one of many newer less expensive means of transferring funds domestically or internationally. Other emerging competitors spanning email/computer money transfer, mobile and ACH based services include: Xoom; Ikobo; Coinstar (GroupEx Financial Corp.) and, Paypal. The implication is that Western Union may be in danger of losing its core competitive advantage due to the ubiquity of potentially realtime very inexpensive international electronic network connectivity. Whether this threat is real or perceived it will have an impact on WU's valuation. If the threat is not real the impact will be short term. If it is real current declines may be an early indicator of a longer term trend.

Analysis:

Visa and MasterCard both allow funds to be transferred between cardholder's for a small fee. Technology middle-ware providers such as Obopay and Paypal are utilizing Card Associations, EFT and Internet connectivity between payors and payees to facilitate low cost money transfers and/or payments in near realtime. Senders and receivers may utilize either ATM/bank machines, card readers, mobile phones, land-line telephones or computers as authentication devices to move funds across these networks between either bank accounts or card (prepaid, debit or credit) accounts (which are becoming de facto bank accounts) wherever there is Internet access, an ATM network and a major card association or EFT system.

Western Union, moreso than competitor MoneyGram, has the resources to adopt new technology or acquire competitors however they are somewhat limited due to the cost structure and legacy systems upon which their infrastructure has been established and the general inertia that most large well established company must contend with.

Solutions: One solution which is complex and painful essentially requires WU to begin to "eat their own lunch" (before someone else does). They must work with First Data Corp (who recently spun them off) to leverage the FDC issuing, processing and acquiring platform (the largest in the world) to introduce a new payment/remittance product that fully utilizes next wave technologies. WU has done it before and they can do it again but it may be costly and difficult.